LONG RATIO CALL SPREAD
Overview
Sell one lower-strike call and buy two higher-strike calls. Often structured for a small credit or zero cost. Small loss if the stock stays flat (only near the long strike); large profits if the stock makes a significant upside move past both long calls.
What it does
You sell one lower-strike call (collecting premium) and buy two higher-strike calls (for a big move). Structured for a credit or zero cost, you have no loss if the stock falls — the credit protects you. If the stock makes a big move, two long calls double your upside exposure. The only bad outcome is the stock landing exactly at the long call strike at expiration, where you lose the spread width minus the credit.
Structure
sell 1 call + buy 2 calls
Setup
- 1.Sell 1 Call at a lower strike.
- 2.Buy 2 Calls at a higher strike.
- 3.Same expiration.
Max profit
Theoretically unlimited — two long calls benefit from a strong sustained rally.
Max loss
Limited. (Short Strike − Long Strike − Net Credit) × 100 if the stock finishes exactly at the long call strike.
Breakeven
Lower: Long Strike − Net Credit. Upper: Short Strike + Max Profit per Share.
When to use
When you're very bullish and expect a large upside move. Best structured for a credit so there's no loss if the stock falls.
When to avoid
When you expect the stock to stay flat or barely move — maximum loss occurs exactly at the long call strike.
Example trade
Stock: AAPL at $150 Sell 1 AAPL $150 Call at $5.00 Buy 2 AAPL $160 Calls at $2.40 each (debit $4.80) Net Credit: $0.20 ($20) Expiration: 30 days If AAPL falls to $140: Profit = $0.20 credit (both sides expire worthless) If AAPL rises to $180: 2 long calls worth $20 each; Profit = ($40 - $10 + $0.20) × 100 = $3,020 Max Loss: ($160 - $150 - $0.20) × 100 = $980 if AAPL pins at $160
Common mistakes
- ×Allowing a debit entry — the backspread should be entered for a credit or zero; paying a debit changes the risk profile significantly.
- ×Using near-expiration expirations — two long OTM calls decay rapidly without a large move.
- ×Choosing long call strikes too far OTM — the stock needs an even bigger move to profit.
- ×Forgetting the max loss zone between the two strikes — the position needs the stock to either stay below the short or rally strongly above the longs.
- ×Not considering IV — entering in low-IV environments means the two long calls are cheap but the one short call also generates little premium.
FAQ
Is a call backspread the same as a ratio call spread?
They're inverses. A ratio call spread sells more than it buys (short premium). A call backspread buys more than it sells (long premium, bullish on large moves).
Can I lose on a call backspread if the stock rallies strongly?
No — two long calls mean profits accelerate with a strong rally. The only loss zone is when the stock finishes near the long call strikes at expiration.